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The Middle East isn’t the world’s only hotspot. Even more dangerous is the territorial dispute between China and Japan over a group of uninhabited islands. Both nations believe a conflict would be in their national interests,but neither side wants to back down — something that would cause internal political havoc.

Rather, this is a case of economic relations going in one direction while political relations are going in another.

The two countries are closely linked economically. China was Japan’s largest trading partner last year, and Japan is China’s second-biggest trading partner after the United States. Japan is also China’s largest outside investor. In fact, directly or indirectly, Japan employs about 10 million Chinese. According to the New York Times, their economies complement each other. Japan’s technology enables it to provide many of the machines in Chinese factories. Some believe that this cooperation has made China’s economic emergence possible. On the other hand, Japan’s electronics companies are dependent on sales to China’s low-cost manufacturers, which, as one source put it, “use Japanese memory chips, display panels and other parts in many of their high-tech products.”

Given their economic ties, one would think the two countries could resolve just about any political issue. Not so with the long-term dispute over these islands. Japan’s claims come from the late 1800s, but the Chinese view actions from this period as an imperial power’s efforts to enforce its will on a weak, divided China.

There is another reason for the dispute: studies suggest that the area may be rich in oil.

Meanwhile, a highly nationalistic group in Japan is pushing Tokyo not to give into Chinese pressure. Some Japanese have even showed up on the islands. The problem for Japan is that it needs China economically more than China needs Japan.

The islands in this dispute are the Sankaku Islands (the Japanese name) or Diaoyu (China’s name), which are north of Taiwan. Japan has occupied them for more than a century, but China has never given up its claim.

The situation is so sensitive in China that protests erupted in dozens of cities recently. The Italian consul’s car in Guang-zhou was attacked, and there were acts of vandalism in a number of cities. Protests in Beijing tied up traffic in the diplomatic section of the city. One senior Chinese official, a retired general, went so far as to suggest that Japan should give up the Ryukyu island chain, which stretches from Japan to Taiwan. From a military standpoint, he said they could be seen as encircling China.

While public opinion in China doesn’t play the same role it does in the United States, it is important in this case. Beijing , too, is under intense internal pressure not to give into the Japanese on this issue.

The Chinese police appear to have handled the protests well, probably because the demonstrations had government support. Beijing wanted to send a message to Tokyo while avoiding actions that would further damage relations.

The most formal comments came during U.S. Defense Secretary Leon Panetta’s recent visit to China. China’s Defense minister, Gen. Liang Guanglie, warned Panetta that China reserved the right to undertake “further actions.” He said the islands “have all along been China’s inherent territory since ancient times, for which China has sufficient historical jurisprudential evidence.”

The U.S. goal is remain neutral, encouraging both sides to strike a compromise.

The problem for the United States is that it has a treaty with Japan. Assuming Washington intends to honor that treaty, it should make it clear to the Chinese that while it favors a peaceful resolution to the issue, the United States would side with Japan if push comes to shove. Unfortunately, such a position does not fit with President Obama’s approach, which has been called by some, “leading from behind.” Instead of being in front in the effort to resolve this age-old dispute, the United States is letting others attempt to resolve this issue.

One hope China and Japan will work this out peacefully. If they don’t, the United States will be drawn in, in spite of Obama’s effort to stay out of it.

Dale R. Herspring, a University Distinguished Professor at KSU and a member of the Council on Foreign Relations, is a retired U.S. diplomat and Navy captain.